Restoration Hardware (RH 49.42), which caters to the luxury lifestyle market with its home furnishings and accessories, reported its fiscal second quarter results after Wednesday's close. It exceeded expectations on a number of fronts, and in the process, put a major squeeze on short sellers of its stock, which is up 37% in pre-market action.
The good news flowed from the top line to the bottom line of its second quarter income statement and it got better when the company increased its fiscal 2017 earnings per share guidance by a hefty margin.
For the second quarter, Restoration Hardware reported a 13.2% increase in net revenues of $615.3 million, aided by a 7% jump in comparable brand revenues. Its adjusted gross margin increased 40 basis points to 34.1% and its adjusted operating margin rose 30 basis points to 6.4%. The company's impressive execution fueled a 48% increase in adjusted diluted earnings per share of $0.65, which was well ahead of analysts' average expectation.
The strong performance was attributed to the benefits of its shift to a membership model, greater efficiency in its supply chain network, and a leaner operation overall.
Restoration Hardware anticipates the momentum of those changes carrying on throughout 2017, which it has dubbed a year of execution, architecture, and cash after 2016 was a year of transformation and transition, which we would add didn't go so well. The clearest indication of that was the stock price, which cratered 61% in 2016.
The stock's fortunes have turned this year, however, albeit in a volatile fashion. Entering today's trade, RH was up 61% in spite of a 29% drop between July 20 and August 28. A significant chunk of the latter decline will be recouped today if the pre-market indication holds up throughout the trading session.
Restoration Hardware helped its cause with a material upward revision to its fiscal 2017 outlook. Specifically, the company thinks it is on track to report adjusted earnings between $2.43 and $2.67 per share versus its prior guidance of $1.67 to $1.94. The adjusted net revenue guidance was also raised from a range of $2.40 billion to $2.45 billion to a range of $2.42 billion to $2.46 billion.